GoodReid Investment Counsel

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Market. He sees the market move as a secular one. It took years to develop, and it will take years to unwind. Although November was a catalyst that allowed for the acceleration of the process, it really started earlier than that. The 10-year treasury bottomed in July at about 135, and is now about 1% higher. Interest rates had generally started to move, and some of the related industries reacted to that. Anyone looking at what has happened over the last couple of weeks, might be thinking it is too late and that they can’t get into this rotation, should think again. He thinks it will go on for some time. Over time the reflation trade moves that we have seen will continue, and will reward the types of companies we have seen over the last couple of weeks. About 95% of his clients have a balanced portfolio, and in the fixed income portion, he has been very short on the curve. That has allowed him to come out of this with a very short duration of around 2 years. Currently he is about 50% overweight in the financials.

(Market Call Minute.) They are in full production of the 787 Dreamliner and the 737 Max. It’s all about having better technology, more fuel efficiency which just go straight to the bottom line of airlines. This is a cash flow story.

Probably the most levered money centred bank to the change in interest rates. The CEO was quoted that a 1% move in interest rates would lead to about a $5 billion net income for the company. That represents about $.50 a share. If you put a 10, 11 or 12 multiple on that, you have some serious movements of the stock. Dividend yield of 1.42%. (Analysts’ price target is $19.90.)

We are in a much more favourable regulatory environment, and feels this company is a wonderful entry. This is a bio pharma, as opposed to a chemical pharma. Unlike past years where they traded at a 2X and 3X multiple, they are now trading at or below the multiples of the traditional pharmas. Also, growth metrics are much, much better and much more exciting. Feels this has a long way to go. (Analysts’ price target is $139.08.)

This is in a tentative deal with Dow Chemical. DuPont was a bit of an MBA class analysis that was not run particularly well. Always a little bit of an underachiever. Nelson Peltz came, got some board seats and encouraged change. If they get together with Dow, we’ll see what comes out of it. He wouldn’t buy it at this point, simply because of the change that is going on, but he likes this scenario.

A wonderful franchise and wonderfully managed. It is made up of 3 basic parts. 1) Media, which is ESPN and ABC. 2) Theme parks which have been run seamlessly and have expanded globally and are very profitable. 3) Film production and the related businesses, which has done very well. The one area of concern he has is their ESPN and ABC franchises, which represents about 45% of their total revenue. It still trades at a reasonably good multiple.

(A Top Pick Nov 27/15. Down 15.18%.) He is confounded by this. It is a definite Buy here. They are in infrastructure, and are basically rewiring the US for 1 Gb per 2nd broadband capability. This is on behalf of AT&T, Verizon, Comcast, etc. A fast growing company, in the 20% per year range, and trading at about 14X next year’s earnings. This is a wonderful Buy.

(Market Call Minute.) This just keeps falling. People keep wanting to buy it because it’s got the earnings off the hep C drug, but what he is seeing is that there is big competition and big price erosion.

We are very late in the auto cycle, which is not to say that there won’t be an elongation of production at a high level. This is a major player, and there are some areas that are very mature, like North America, and other areas that present an opportunity, like Europe. All in all, he would give a Pass on this company. It is not likely to be a very big grower.

Some parts of technology are cyclical, and others have become ubiquitous, just part of our lives. This is a major chipmaker and looking at the explosion of opportunities for chips, whether in smart cars, computers, etc., many areas of our lives are driven by chips. The difficulty of the producers is commoditization. Basically, they are fighting a trend of lower and lower price trends that have to be offset with new initiatives of bigger and better that no one else has, or on volume. This company spends $12-$15 billion in capital expenditures each year. There are many areas in the Tech space that he would probably gravitate to, before this one.

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